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The company’s earnings of 11 cents per share missed the prior-year quarter’s results of 16 cents as well as the Zacks Consensus Estimate of 14 cents.

Total operating revenue climbed 4.5% year over year to $1.34 billion, but lagged the Zacks Consensus Estimate of $1.35 billion. The year-over-year growth was buoyed by the introduction of new services, fleet re-designing and expansion of network footprint.

Operating income came in at $102 million, down by 22.0% year over year. Operating margin decreased 260 basis points (bps) year over year to 7.6%.

Operating Statistics

Airline traffic, measured in revenue passenger miles, jumped 7.3% year over year in the reported quarter on 7.8% growth in capacity. Load factor (percentage of seats filled with passengers) decreased 40 bps year over year to 84.9%.

Yield per passenger mile declined 2.8% year over year in the second quarter. Passenger revenue per available seat mile plunged 3.3% while operating revenue per available seat mile declined 3.1%.

Expenses

In the quarter under review, total operating expenses increased 7.5% year over year to $1.23 billion, primarily due to maintenance expenses (up 30.6%), other operating expenses (up 13.5%) plus fuel costs and related taxes (up 3.3%). JetBlue’s operating unit cost or cost per available seat mile (CASM) was down 0.3% year over year. Excluding fuel, CASM increased 3.3% from the year-ago quarter.

Financials

JetBlue ended the quarter with unrestricted cash and short-term investments of $867.0 million. The company has a revolving credit facility of $350 million. Total debt, as of Jun 30, 2013, was $2.82 billion as compared with $2.85 billion at the end of 2012.

Guidance

For the third quarter of 2013, the company expects CASM between 1.0% and 3.0% and CASM, excluding fuel, between 3.0% and 5.0%. CASM for full year 2013 is expected to increase 0.5–2.5%. Excluding fuel, CASM is expected to increase 2.5–4.5%.

Capacity is expected to increase 3.5–5.5% in the next quarter and 5.5-7.5% for 2013. JetBlue expects average fuel price per gallon, including hedges and fuel taxes, at $3.10 in the third quarter of 2013 and has hedged approximately 44% of its projected fuel requirements.

Agreement

JetBlue Airways entered into a bilateral codesharing pact with South African Airways. Per the agreement, both the airlines will interlink their networks through New York's John F. Kennedy International Airport and Washington's Dulles International Airport. The agreement is yet to receive the approvals of the U.S. Department of Transportation and other foreign regulatory authority.

Southwest Airlines Co. (LUV - Free Report) reported second-quarter 2013 adjusted earnings of 38 cents per share, a penny short of the Zacks Consensus Estimate. The results, however, improved from the prior-year quarter adjusted earnings of 36 cents per share on fleet re-designing, expansion of network and less fuel expense.

United Continental Holdings Inc. (UAL - Free Report) posted earnings of $1.35 per share, a penny ahead of the Zacks Consensus Estimate. Comparing year over year, the results declined from $1.41 per share.

Our Analysis

JetBlue currently carries a Zacks Rank #4 (Sell). We believe JetBlue faces several headwinds such as unstable conditions across the global economy, competitive threats and regulatory issues. These will likely weigh on its stock price. Further, the company’s no-dividend policy is not likely to be applauded by the investors.

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